Your compliance division isn’t the department of sales prevention.
Like you, your peers in compliance also struggle with the high volume of proposals crossing their desks. Each requires the alteration of policies, technologies and workflow.
That volume increase, meanwhile, coincides with more reps arguing their clients are special cases, says Darren Coleman, vice president and associate branch manager at Raymond James.
That’s not always bad, but some judgment needs to be applied to these requests. Say you’re having a problem with the validity of a client’s ID. If it’s simply out of date, check company policy to find out what to do.
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But, if the client doesn’t have any form of valid ID, call your branch manager. Coleman once dealt with a senior who only had an age-of-majority card that was decades old. That was a special case.
“When there’s no policy to reference, I can help,” he says. “But it’s not my job to bend the rules.”
Which clients are elderly?
Coleman notes it’s getting harder for advisors to serve their elderly clients.
This is due, in part, to IIROC having recently formed a sub-committee to examine regulatory guidance specific to older clients. In its annual report, IIROC also indicated the suitability of elderly investors is a key agenda item for the coming year.
Given these initiatives, Coleman says Raymond James now requires that its advisors pay special attention to their older clients’ risk tolerances, objectives and uses of leverage. The firm says these advisors must file extra documentation when high-risk investments make up more than 10% of the portfolios owned by seniors.*
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Risky holdings include hedge funds, resource company stocks, and other instruments that produce high rates of volatility, says Coleman.
IIROC has identified senior protection as a priority, So it will examine more cases involving complaints from older clients
And, IIROC defines seniors as any clients age 60 or older. Coleman says this is too young and, while he supports proper filing practices, understands the classification can be frustrating. A contributing factor to advisor frustration is interest rates, which are critical to producing volatility-free returns. They remain in a stubborn trough, making it hard to produce adequate returns for 60-year-olds, who can reasonably expect to live another 30 years.
Customers required to back off on volatility could easily outlive their savings. And they’ll blame their advisors.
To protect yourself, you’ll have to document every move, as well as understand the parameters of all new requirements.
Raymond James spelled this out for its advisors in an email. It asked that they pay special attention to the objectives of older clients, and stressed, “the documentation and details provided [for people with speculative objectives exceeding 10%] must support the risk-tolerance assessment. Branch Managers [have to] include notes showing they’ve reviewed the risk factors.”
This applies to both new and existing clients and, going forward, advisors must evaluate risk levels and investments during transaction and monthly statement reviews.
These steps are critical since any complaint made about the portfolio of a client older than 59 will lead straight to a regulatory review of suitability documents.
Coleman once had an older client who asked to invest in a large volume of technology stocks in 1999. When he refused, she moved to a new advisor and subsequently lost more than 60% of her portfolio.
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She then filed a complaint against the new advisor, and mentioned Coleman in her statement. Regulators contacted him, but his documentation proved he advised against the risky move.
The next generation
It’s crucial to remember, says Coleman, that your clients’ children can also be threats. This is because they have vested interests in the inheritable funds of their parents. So even if your customer signs off on her investments, her kids may not agree with your strategies. This can lead to complaints.
To head off confrontations, Coleman suggests advisors keep contact with close relatives of older clients so that when someone’s health or judgment starts to fail, advisors will have the confidence of the next generation
*The original version of this article equated Raymond James’ company policy with official IIROC policy. This was incorrect since they’re separate. Return to the corrected sentence.
Katie Keir is the assistant editor of Advisor Group.